Canada's steel town still nervous despite tariff reprieve

HAMILTON, ONTARIO (Reuters) - A temporary exemption from U.S. tariffs is little comfort to the Canadian steel city of Hamilton, coping with months of uncertainty as U.S. President Donald Trump has threatened a potentially devastating 25 percent duty unless the North American Free Trade Agreement is renegotiated.

FILE PHOTO: A Canadian flag flies above another industry site with ArcelorMittal Dofasco in the background in Hamilton, Ontario, Canada, March 9, 2018. REUTERS/Peter Power/File Photo

Canadian negotiators are weighing the interests of the relatively small sector, responsible for about 22,000 direct Canadian jobs and C$9.0 billion ($7.0 billion) in U.S. exports, against those of bigger industries like auto manufacturing and politically influential groups like dairy farmers.

“I don’t think we’re at the end of it. Now it’s being used as leverage,” said Hamilton Port Authority Chief Executive Officer Ian Hamilton. “President Trump is putting a lot of pressure on everybody.”

Hamilton, population 700,000, has pushed to diversify its economy, with better transit links to Toronto and affordable homes that are attracting families priced out of Canada’s biggest city.

A C$139-million project is underway to clean up coal tar that contaminates the harbor and condos are replacing once empty downtown storefronts.

When Canadian steel escaped U.S. steel tariffs in 2002, the duties had diverted some cheap steel into Canada. In recent years, a global steel glut has made it difficult for Canadian mills to compete.

But ArcelorMittal’s (MT.AS) Dofasco mill, coking and finishing operations at Stelco (STLC.TO), and a collection of smaller operations still directly employ 10,000 people in Hamilton.

The North American steel industry is heavily integrated, with raw materials, steel and parts crossing the U.S.-Canadian border several times before a finished product such as a vehicle or refrigerator is sold to consumers. About 65 percent of the Hamilton port’s tonnage is iron ore and coal used to make steel.

Hamilton, the port president, said one steel company called after Trump first signaled the tariffs on March 1, when it was unclear whether Canada would be exempt at all. The firm wanted to know if the agency might be willing to take over management of its warehouse and find different cargo to fill it.

Hamilton Chamber of Commerce President Keanin Loomis, a former Washington lawyer, is part of a new generation in the city who have never worked in a steel mill. But like much of the city, he has a personal connection to steel, a father-in-law retired from the Dofasco mill.

If a tariff is imposed, Loomis expects imports to lower domestic steel prices, potentially driving some employers south of the border, where tariffs are expected to boost prices.

Loomis said high labor costs, environmental regulations and a looming carbon tax already make it difficult for the steel industry to compete.

“This could be the thing that puts it over the edge,” he said.

The city’s United Steelworkers Local 1005 has only about 550 active members, down from more than 13,000 in its heyday in the 1970s.

The local union represents workers at Stelco, but not Dofasco, which never organized. Since 2004 it has weathered the closure of Stelco’s Hamilton mill, Stelco’s two trips through bankruptcy protection, and two new owners. Members at another plant, Max Aicher North America, have been locked out for almost five years over proposed wage and benefit cuts. And union president Gary Howe sees choppy waters ahead.

“With Trump being in there, it’s probably never going to be over,” he said.

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The Canadian government has vowed to continue lobbying Washington until the threat of duties disappears.

Pressed on Trump’s decision to link the exemption to NAFTA, Canadian Foreign Minister Chrystia Freeland said on Thursday that Canada considers the two issues to be totally separate.

“I think they should get some more backbone,” Steve Kajganic, a retired veteran of the Stelco mill and a second-generation steelworker, said of the Canadian government. “Stand up for our country, instead of selling it out.”